Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Under the perpetual inventory system, how is the Cost of Goods Sold (COGS) determined when inventory is sold?

COGS is calculated only at the end of the accounting period based on a physical count.

COGS is not recorded until payment is received from customers.

COGS is updated continuously with each sale, reflecting real-time inventory changes.

COGS is determined by averaging the cost of all inventory purchases during the year.

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Verified step by step guidance

Understand the perpetual inventory system: This system continuously updates inventory records and Cost of Goods Sold (COGS) in real-time as transactions occur, rather than waiting until the end of the accounting period.

Recognize the key feature of perpetual inventory systems: When inventory is sold, the system immediately records the reduction in inventory and calculates the COGS based on the cost of the specific items sold.

Identify how COGS is calculated: Under the perpetual system, the cost of the sold inventory is determined using methods such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or weighted average cost, depending on the company's chosen inventory valuation method.

Understand the real-time nature of updates: Each sale triggers an automatic update to both the inventory account and the COGS account, ensuring that financial records reflect the most current data.

Compare with other systems: Unlike the periodic inventory system, which calculates COGS at the end of the accounting period based on a physical count, the perpetual system provides continuous tracking and immediate updates to COGS.